Taking Stock

By Tony Crowell
By Tony Crowell

It’s Almost Over

 As the world knows now, the Chicago Cubs won their first World Series since 1908. Over the month following that historic victory, the stock market climbed 8%, equivalent today to a 1,400 rise in the Dow Jones Industrials. As omens, it’s doubly fortunate that the Cleveland Indians didn’t win. After they last did in 1948, the market slumped 5% over the next month.

Stocks could use some favorable omens. They are down for eight consecutive sessions, their longest losing streak in five years. The economy is improving, with favorable reports on jobless claims, productivity, factory orders and the nonmanufacturing ISM survey. These seem strong enough to justify expectations for the Federal Reserve to raise interest rates at its December meeting.

Uncertainties arising from next week’s election are stifling stock prices. One concern is the possibility that court challenges may lead to prolonged disputes like those that followed the 2000 election. The S&P 500 lost 1.6% the day after that election when the uncertainty of its outcome became apparent. It lost another 2.7% until the Supreme Court issued a late-night ruling a month later that settled the election.

In 19 of the last 22 elections, when stocks advanced in the three months before the election, the nominee representing the party holding the White House won. Since early August, the S&P 500 is down more than 4%. The financial media view a victory by Mr. Trump as bad for the stock market, at least in the short-term, because of his unproven political record and unorthodox views on many issues, including international trade. Mrs. Clinton’s apparent lead has narrowed recently with the stock market sliding in parallel.

With emotions and anxieties more acute than in most previous elections, the temptations are to overreact. I have clients on both sides of this election who have discussed selling their positions in the event their candidate loses. History has shown that presidential politics have a surprisingly minor impact on stock prices. Stock prices generally rise over time, in fact, since 1926, the S&P 500 has been up more than two-thirds of these years, a period with eight Republican and seven Democratic Presidents.

People like stories and investors like market pundits who tell us to buy clean energy companies and multinationals for a Clinton Administration and coal miners and companies with domestic markets if Mr. Trump wins. Logical, but bear in mind that the advice in 2008 was to avoid healthcare and load up on alternative energy. Healthcare then trounced the broad market while alternative energy stocks were down 47%. Many commentators were bearish when President Obama took office but the overall stock market has more than doubled since then.

The world is complex and companies find ways to adapt to changing conditions. For example, while President Obama sought to reduce reliance on fossil fuels, major advances in extracting oil and gas from shale formations has led to nearly doubling crude oil production on his watch.

When Senator Kerry was expected to defeat George W. Bush, alternative energy stocks were market favorites. They plunged for six months when he lost and then doubled the market return over the next three years.

Investors should be alert for bargains developing through overreactions. This takes patience and one check would be to limit tuning of portfolios to something like 5% for the rest of the year. This is a world of rising interest rates with an improving economy. If you feel you must act, look for smart companies with rising dividends. Amazon (AMZN-$766), Apple (AAPL-$109), General Motors (GM-$31), Intel (INTC-$33), JP Morgan Chase (JPM-$68) and Visa (V-$80) might get battered but will add to Thanksgiving blessings.

Please be sure to vote!

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622


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